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About oldman

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  1. May a 457(b) FICA Alternative Plan (that provides for mandatory employee deferrals of 7.5% of compensation) provide that such deferrals can be made on a Roth basis instead of a pre-tax basis?
  2. I agree that the plan can use the 1,500 hours of service because IRC §§410©(1)(A) and 411(e)(1)(A) exempt governmental plans from the eligibility and vesting rules of ERISA. Another question concerning this plan. Plan covers all employees, who are required to contribute employee contributions of 3% of compensation that are "picked up" by the employer and matched by the employer. Employer wishes to exclude part time employees from participating in the plan going forward. I believe the plan can be amended to exclude part time employees from participating in the employer matching contribution feature of the plan. However, the employees must continue the pick up feature. It appears the pick up amount cannot be changed or modified. Revneu Ruling 81-35, 1981-1 C.B. and 81-36, C.B.255 address certain requriements for contributions to be picked up by an employer within the meaning of §414(h)(2). These Revenue Rulings establish that the following criteria must be satisfied: (1) the employer must specify that the contributions, although designated as employee contributions,are being paid by the employer in lieu of contributions by the employee; and (ii)the employee must not be given the option of choosing to receive the contributed amounts directly instead of having them paid by the employer to the plan. The feature must not allow for a cash or deferred arrangement ("CODA"). Would you agree that excluding part time employees and allowing them now to now receive contributed amounts directly instead of having them paid to the plan would violate Revenue Rulings and result in CODA feature, possibly disqualifying the plan?
  3. Can a governmental 401(a) plan define a year of service for eligibility purposes to be 1,500 hours in a 12-consecutive month period?
  4. We have a non-governmental 403(b) plan with just pre-tax and after-tax contributions. Is the plan considered an ERISA plan and required to perform ACP testing?
  5. An ERISA 403(b) plan is required to file audited financial statements with their 5500 if they have 100 or more participants. A participant is defined as: (1) anyone eligible to participate in the plan even if they are not deferring; or (2) terminated participants who still have money in the plan. A plan excludes employees who do not elect to to make elective deferral contributions of more than $200 for the plan year. Would these excluded employees be counted as participants or not for purposes of the audit?
  6. It is my understanding that the tax on early distributions from a 457(b) plan only apply on monies rolled into the plan from plans subject to the 10% additional tax. One of the exceptions to the additional tax applies to distributions from qualified governmental defined benefit plans to a public safety employee (state or local) who separated from service on after age 50. With that in mind, what if a public safety employee, rolled his distribution from a governmental DB plan into a 457(b) plan and subsequently took a distribution of these dollars - would this distribution be subject to the 10% additional tax?
  7. Took over a non-electing church 403(b) plan, which originally was effective 10/01/2003. Plan document specifically states that eligible employee includes clergymen treated as self-employed individuals for purposes of the Federal Insurance Contribution Act. Plan document does not state that the church intended the plan to be a 403(b)(9). Plan was updated for EGTRRA, but not for PPA, HEART, and WRERA. It is my understanding final 403(b) regulations provide that self-employed ministers can only particiapte in a 403(b)(9) retirement income account. Therefore after 01/01/2009, self-employed clergy were not eligible to participate in the plan. An operational defect occurred and appropriate correction remedy would be to distribute excess salary deferral contributions back to the affected individuals with earnings, and matching contributions, attributable to the salary deferral dollars, would be forfeited to a suspense account to be used immediately as a credit towards future contributions. What do you think?
  8. We have a governmental 401(a) plan with a pick-up feature, and an employer nonelective contribution subject to a vesting schedule. The plan states that service with the employer will not be counted during the time the employee failed or refused to make a contribution to the plan. Can the plan exclude service while a participant failed or refused to make a contribution required under the terms of the plan?
  9. We have discovered information concerning 403(b) contributions relating to a cafeteria plan type of arrangement. I have attached a link providing discussion on this matter. It appears that healthcare benefits similar type of benefits become taxable to all employees. http://benefitslink.com/boards/lofiversion/index.php/t2501.html Ellie Lowder in her book "The Source", pages 7-19, talks about inadvertent cafeteria plans. She states, "if the program permits a choice between taxable (or tax deferred) benefits and nontaxable benefits such as a choice between receiving cash value of unused sick pay, contributions to a flexible spending account or contributions to a 403(b) plan, the employer may have inadvertently set up a Section 125 cafeteria plan". According to the IRS, if an employee can choose between a taxable benefit - such as 403b contributions which are taxable but tax deferred - and non taxable benefit such as the healthcare benefits - the employer has created a Section 125 plan. However, under Section 125, only certain benefits may be offered. Contributions to a 403b plan are not permitted. Any arrangement offering such choices to employees that does not satisfy Section 125 would be an unqualified cafeteria plan. This would result in immediate taxation of benefits to all employees. NOTE - she does not state which benefits are taxable. the assumption would be the healthcare. It seems the solution should be to payout in income the opt out money, and then the participant can elect to defer is as an employee contribution to the 403b if they do not want it in cash.
  10. 457(b) plans may allow participants an opportunity to elect a trustee-to-trustee transfer to a governmental defined benefit plan to purchase service credits under the DB plan in accordance with the rules under 415(n). In addition to pre-tax elective deferrals, a participant contributes roth contributions to a 457 plan. The participants wishes to transfer part of his account balance to a DB plan for the purpose of permissive servcie credits. Can the participant include roth contributions as part of the transfer to the DB plan?
  11. A plan has several loans that have been long since defaulted. Some participants have never made a payment. Needless to say the plan has been a bit lax in their administration of these with no direction for deem distributions. Would there be an issue if they deemed these loans now? What tax year should they use? Any other reg issues that come to mind?
  12. IRS Notice 2001-46 provides that non-electing church 401(k) plans are not subject to regulations of 401(a)(4), 401(a)(5), and 414(s). The notice also states that such non-electing 401(k) church plans would aslo have to be operated in accordance with a reasonable, good faith interpretation of these statutory provisions until such further notice is provided. Therefore, is it correct to say that a non-electing church 401(k) plan could use a non-safe harbor defintion of compensation as a result of being exempt from 414(s) testing, and allocate employer contributions that discriminates in favor of HCEs, but not subject to general nondiscrimination rule of 401(a)(4) and special nondiscrimination rules of 401(a)5)? However, the plan would still be subject to ADP and ACP testing.
  13. Thanks for confirming ability of rural cooperatives to sponsor a 401(k). 401(k)(4)(B)(ii) provides that governmental entities are ineligible to sponsor 401(k) plans except for rural cooperatives. Does this mean a 401(k) plan sponsored by a rural cooperative would be considered a governmental plan exempt from ERISA? In addition, it is my understanding a rural cooperative's 401(k) plan not only can but must be a money purchase pension plan if the rural cooperative does not have a grandfathered 401(k) plan. Although most employers can have a 401(k) arrangement as part of a P/S or stock bonus plan, a rural cooperativecan only have one in the context of a money purchase pension plan. That being said, following the establishment of the pension plan, and the addition of the 401(k) feature, can the employer change the money purchase plan featuere to a profit sharing arrangement, or will that jeopardize the rural cooperative's sponsorship of the 401(k) plan?
  14. Are rural cooperatives, as defined under §501©(12), allowed to sponsor a 401(k) plan? Also, would the plan be maintained as an ERISA plan or a governmental plan?
  15. We have a 403(b) plan in which there is one participant who took out a 5 year loan in May 2008. It was scheduled to be paid off in last month. Participant is with school district who changed their payroll from weekly to bi-weekly in 2009. They never changed loan payment amount to reflect this change. Participant currently has 40% ($4,000.00) of loan left as a balance. Re-amoratizing isn't an option due to time frame. I understand a missed payment that extends beyond the grace period, or a similar infraction triggers a "deemed distribution". In other words, the amount of the of the loan (or, in some situations, the amount of the loan in excess of the maximum) is treated as if it had been distributed to the participant. This means that the entire loan balance is immediately taxable and may be subject to the early distribution penalty of 10% under IRC §72(t). A deemed distribution can occur if there is no distributable event. The regulations require that a loan that has been defaulted as a deemed distribution must continue to be held on the plan records until such time such affected individual is eligible for a distribution under the terms of the plan. However, since the missed payments appears to be the fault of the plan sponsor, what actions could be taken that relieves the participant of the tax liability of the defaulted loan?